How parents can interest their children in investing early

The Edge Singapore spoke to multi-asset fund management firm Foord Asset Management’s portfolio manager and analyst Xue Jing Cong on how parents can cultivate an interest in investing in their children.

The Edge Singapore: Investing can seem like a distant topic for children, especially when they’re younger. How can parents cultivate an interest towards investing in their children?

Xue: Parents can let their children be a part of the journey by investing in businesses of which they feel connected. For example, in my family, we would buy Disney shares for our children as presents during their birthday, knowing how much they like Disney characters.

Parents can also use this opportunity to explain how businesses work, and how their interests and passions could be catalysts for investment ideas. Each year, as a family, we review the performance of the stock, and we will explain to them how or why it went up or down.

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It makes a big difference when kids are mentally and physically involved. For instance, parents can create opportunities for their children by putting them in charge of small tasks such as managing the loose change used for vending machines. This allows our children to build up their analytical thinking, make decisions, and cultivate a sense of responsibility through real-life situations with tangible outcomes.

Additionally, the use of games and simulations can also spice up the learning process. There are board games and online stock market simulators where kids can practice investing without real money.

What are some good habits children can pick up from learning about financial literacy at an early age?

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Firstly, parents can instill in their kids the importance of responsible decision-making. Financial literacy teaches kids about weighing pros and cons before spending. This translates to making well-thought-out choices in other areas of life.

Secondly, setting savings goals and creating a budget will enable children to learn to plan for the future and develop a sense of perseverance to achieve their goals. Parents can also introduce their children to the importance of compounding so they understand that their savings and investments compound little by little.

Thirdly, by teaching them to save for something they truly desire, children will develop the ability to delay gratification and prioritise long-term rewards over fleeting pleasure.

Fourthly, parents may consider tying effort to reward through allowances or chores. This helps to instil the value of hard work and responsible money management.

Lastly, giving children the autonomy to manage their own money, even in small amounts, will help them cultivate a sense of ownership and accountability. This is important in preparing them for financial independence in the future.

At what age should children start learning about financial literacy?

Ideally, it is good to start at a young age with the use of age-appropriate concepts that serve as building blocks for more complex topics we will have to inevitably face as teenagers, adults and retirees.

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The window between 3 to 8 years old is a golden period for learning and development. During this time, children are like sponges, absorbing information and experiences with incredible openness.

This presents a unique opportunity to be intentional with their upbringing. We can’t dictate their life path, but we can provide them with strong foundations and positive influences to guide them on their future journey. 

After we’ve built the foundation of basic concepts of savings and budgeting, parents can start to introduce the concept of investment to their children.

Savings accounts are a great way to introduce children to the concept of growing money. The interest rate is like a reward the bank gives individuals for keeping their money with them, like earning a small bonus for being a good saver.

On the other hand, the bank may charge fees for things like keeping a low balance. This can be a good opportunity to explain that borrowing money can sometimes cost you. Interest rates can work for you or against you, depending on how you use them.

What are some challenges children may face while learning about financial literacy and how should they overcome them?

Complex financial terms may be confusing and abstract, and the lack of real-world application experience can make it hard for children to grasp the value of money. As such, it’s crucial for parents to use relatable examples and familiar scenarios to illustrate certain concepts, which will help children better understand and digest them.

Children at a young age may also struggle with short attention spans. To navigate this, parents can strive to keep things fun and engaging with games and age-appropriate activities.

Do you think that eventually the responsibility to teach children financial literacy should extend to schools as well and not just limited to parents?

Certainly, schools play a vital role alongside parents in equipping children with financial literacy. An ideal approach involves collaboration to provide a holistic education.

Schools can bridge knowledge gaps for students from families where financial literacy exposure may be limited. By developing a structured curriculum, schools may ensure that all students receive a foundational understanding of key financial concepts. This creates a level playing field and allows for interactive learning in the classroom.

Financial literacy education thrives on a shared responsibility between schools and parents. This unified approach empowers children to make informed financial decisions in the future. 

In your opinion, what do you think is the easiest way for children to become financially literate at an early age? How can financial concepts be made digestible to younger minds?

Pocket money and red packet (or ang pow) money offer fantastic opportunities to introduce financial literacy to children. By giving them some control over how they spend, save, or donate this money, parents can spark important conversations about financial responsibility. This sense of ownership empowers children to learn from their choices, whether they choose to spend wisely, save for a desired item, or share with a charity.

Adding to this, a piggy bank or a clear jar specifically for savings can be incredibly helpful. Seeing their money grow in a tangible way reinforces the positive impact of saving habits. This visual reminder can motivate them to continue making responsible financial decisions.

Aside from books, do you think other tools such as technology and digital tools can play a role in facilitating lessons in financial literacy for children?

Children are getting more and more digitally-savvy. As true digital natives, using technology to teach financial literacy is in synergy with the way they are interacting with the world these days.

Furthermore, digital tools can fill in the gaps that books cannot, such as providing interactive audio and visual content that can engage children and help them better retain information.

Based on your experience, what are some common misconceptions about money and investing that children may have, and how can these be addressed in lessons concerning financial literacy?

Children may wrongly assume that there is an endless supply of money and that it is easy to obtain whenever they want something. To address this, we can teach the concept of budgeting during financial literacy lessons, and instill in children the idea that money is earned through work.

Kids may also think that investing is something only adults or wealthy individuals do, and has limited relevance to them. To navigate this, it is important to introduce financial concepts in simple age-appropriate terms, explain how it works and how even small amounts of money can be invested over time to grow. It is key to use relatable examples, such as investing in a favourite toy or game to earn more later.

Furthermore, following the initial exposure to money, children might equate having more money to greater happiness and fulfilment. As such, it is paramount for parents to step in and teach the importance of financial responsibility and drive home the understanding that money does not automatically mean happiness. It is important to have open discussions about the value of experiences, relationships, and personal fulfilment beyond material possessions.

Generally, financial literacy education in Singapore focuses mainly on earnings and savings. Comparatively. investing is less discussed but is arguably the most important aspect. This topic can be bridged through child-friendly concepts such as drawing comparisons of investing to planting a seed and waiting for the seed to grow. Like investments, we need to be patient, monitor its growth consistently and make different decisions to better its growth e.g. repotting the plant, removing weeds etc.

What are some indicators that can be used to assess the efficacy of teaching financial literacy to children? How can the long-term impact of financial education on individuals' financial success be measured?

Some short-term indicators to assess the efficacy of teaching financial literacy to children include:

1. Knowledge acquisition: We can assess children's understanding of basic financial concepts taught in the curriculum through quizzes, tests, or interactive activities.
2. Behavioural changes: Observing changes in children's behaviour related to money management, such as budgeting, saving, and distinguishing between needs and wants, would be telltale signs of whether or not they are applying what they have learnt.
3. Skill development: Parents or teachers can evaluate children's ability to apply financial skills in real-life situations, such as making spending decisions or setting financial goals.
4. Engagement and participation: We can further measure children’s engagement and participation in financial literacy activities and discussions to gauge their level of interest and involvement.

For long-term assessments, this will take place years down the road as children mature into adults and obtain greater financial independence, making the impact more evident. Indicators could include:

1. Financial behaviours and habits: It can be helpful to assess their future financial success by asking the following questions – What is their mentality when making financial decisions, such as saving rates, debt management, and investment choices? Do they track their spending, or avoid impulse purchases?
2. Financial wellbeing: Do they feel secure about their financial future? Are they on track to meet their financial goals?

Looking ahead, what do you envision as the future of financial literacy education for children?

The future of financial literacy education for children is likely to be dynamic, interactive, and increasingly personalised, with a focus on early intervention, practical experiences, socio-emotional development, and global awareness.

By staying abreast of emerging trends and developments, educators, policymakers, and stakeholders can ensure that financial education remains relevant and effective in preparing children for a financially literate future. Here are some trends to look out for:

1. Integration of technology: With the increasing prevalence of digital devices and online platforms, financial education programs are likely to leverage technology more extensively. This could involve interactive mobile apps, gamified learning platforms, and virtual simulations that engage children in hands-on financial experiences.
2. Personalised learning experiences: Tailoring financial education to individual learning styles, interests, and needs will become more common. Lesson content and activities will be customised to match each child's preferences and abilities.
3. Experiential learning opportunities: Hands-on, experiential learning will play a significant role in future financial education initiatives. Children may participate in real-life financial activities, such as managing virtual bank accounts, investing in simulated stock markets, or running mock businesses, to gain practical experience and develop critical financial skills.
4. Inclusion of socio-emotional learning: Recognising the interconnectedness of financial and socio-emotional skills, future financial literacy programs may incorporate elements of social and emotional learning (SEL). Teaching concepts like decision-making, problem-solving, resilience, and empathy alongside financial topics can better prepare children to navigate complex financial situations and make responsible choices.
5. Global perspective and cultural relevance: As economies become increasingly interconnected, financial literacy education will likely adopt a more global perspective, emphasising cross-cultural understanding and awareness of global financial systems. Programs may also incorporate culturally relevant examples and case studies to resonate with the diverse racial and international population that Singapore has.